uploads///Krogers Investor Returns and Cost of Capital

Kroger’s Stock Delivers a Solid Performance

By

Updated

A look at return on equity

The Kroger Co. (KR) has posted above-average return on equity during the last three years despite high levels of investment. The company’s ROE (return on equity) stood at 31% in fiscal 2015 as compared to Whole Foods Market’s (WFM) ROE of 15%, Walmart’s (WMT) ROE of 20%, and Costco Wholesale’s (COST) ROE of 17.8%. ROE reflects the amount of net income as a percentage of equity capital.

Article continues below advertisement

Valuations

Kroger currently trades at a one-year forward PE ratio of 18.2x. It is cheaper than Sprouts Farmers Market (SFM) at 23.5x and Costco at 27.7x, but it is pricier than SuperValu at 8.7x and Walmart at 13.4x. This comparison is based on data from October 26, 2015.

Share repurchase and dividends

Kroger (KR) has a long-term financial strategy to use its cash flow from operations in repurchasing shares and funding its dividends.

The company’s strong financial position allowed it to return $924 million to its shareholders through dividends and $3.1 billion through share repurchases between fiscal 2013 and fiscal 2015.

Article continues below advertisement

Stock price movement since 2014

Kroger’s stock performance has been outstanding in relation to its peer group. The stock has risen by more than 90% since 2014 (as of October 26, 2015) compared to dull performances by its peers Whole Foods Market (WFM) with a 40% fall, Sprouts Farmers Market (SFM) declining by 34%, and Walmart (WMT) declining by more than 20% during the same period.

It outperformed the S&P 500 Index (SPY), which registered a growth of 16%, and the S&P 500 Retail Food and Staples Index, which grew by 22% during the period.

ETF exposure

Investors can gain exposure to Kroger (KR) by investing in the SPDR Consumer Staples Select Sector ETF (XLP) with ~2.3% weight, and the SPDR S&P Retail ETF (XRT), with ~1% weight.

Advertisement

More From Market Realist